Investors must be ready for the power of asset tokenization

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While it remains a relatively new concept, asset tokenization is being deemed as one of the most compelling applications of blockchain technology amongst experts. Backed by benefits like greater portability, improved security, increased efficiencies, and fractionalization, asset tokenization has massive potential and is becoming impossible to ignore.

It is transforming finance with enhanced security and liquidity. Not to mention, there is a less obvious benefit here, which is the value of real-world assets. With this level of potential, it is not an understatement to say that the momentum surrounding asset tokenization is growing. While there are many benefits and opportunities with asset tokenization, its success hinges on some challenges.

Explaining asset tokenization

Asset tokenization is the process of turning physical assets, like real estate, stocks, paintings, and commodities, into blockchain-based digital tokens. It entails converting the ownership rights and features of a specific asset into a digital form. This can then be divided into smaller units and traded on a blockchain tokenization network.

It allows assets that are typically illiquid, costly to trade, or inaccessible to be represented as tokens with specific ownership rights and properties. The tokens are often made using smart contracts, which are self-executing contracts with terms written into code. The tokens representing the underlying assets can be transferred, bought, and purchased—enabling fractional ownership and establishing liquidity.

Every token usually represents a share or fraction of the underlying asset, allowing users to own a portion of the asset without needing to purchase the full asset. When talking about asset tokenization, it is important to note how it contrasts with the securitization of assets. The securitization process entails pooling certain illiquid asset classes so that they can be repackaged into securities.

Visual representation of asset tokenization | Source: Go to Source to See Full Article
Author: Guest Post

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